FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 0-18993
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WINTON FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 31-1303854
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5511 Cheviot Road, Cincinnati, Ohio 45247
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(Address of principal executive office)
Registrant's telephone number, including area code: (513) 385-3880
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ ]
As of February 10, 2003, the latest practicable date, 4,492,554 shares of the
registrant's common stock, no par value, were issued and outstanding.
Page 1 of 20
Winton Financial Corporation
INDEX
Page
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive
Income 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION 17
SIGNATURES 18
CERTIFICATIONS 19
2
ITEM 1 FINANCIAL STATEMENTS
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
December 31, September 30,
ASSETS 2002 2002
Cash and due from banks $ 1,561 $ 1,263
Interest-bearing deposits in other financial institutions 20,599 10,702
------- -------
Cash and cash equivalents 22,160 11,965
Investment securities available for sale - at market 14,028 13,095
Mortgage-backed securities available for sale - at market 186 197
Mortgage-backed securities held to maturity - at amortized cost,
approximate market value of $5,249 and $5,685 at
December 31, 2002 and September 30, 2002, respectively 5,320 5,761
Loans receivable - net 438,291 428,367
Loans held for sale - at lower of cost or market 19,444 28,610
Office premises and equipment - at depreciated cost 3,836 3,571
Real estate acquired through foreclosure 2,220 2,462
Federal Home Loan Bank stock - at cost 7,917 7,828
Accrued interest receivable 2,580 2,867
Prepaid expenses and other assets 471 523
Intangible assets - net of amortization 143 158
Prepaid federal income taxes - 297
------- -------
Total assets $516,596 $505,701
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $334,228 $332,995
Advances from the Federal Home Loan Bank 131,765 124,427
Other borrowed money 2,000 2,000
Accounts payable on mortgage loans serviced for others 590 675
Advance payments by borrowers for taxes and insurance 2,788 1,830
Other liabilities 1,677 2,091
Accrued federal income taxes 656 -
Deferred federal income taxes 1,573 1,667
------- -------
Total liabilities 475,277 465,685
Commitments - -
Shareholders' equity
Preferred stock - 2,000,000 shares without par value authorized;
no shares issued - -
Common stock - 18,000,000 shares without par value authorized;
4,470,054 and 4,465,054 shares issued at December 31, 2002 and
September 30, 2002, respectively - -
Additional paid-in capital 10,358 10,321
Retained earnings - restricted 30,704 29,360
Less 500 shares of treasury stock - at cost (5) (5)
Accumulated comprehensive income, unrealized gains on securities
designated as available for sale, net of related tax effects 262 340
------- -------
Total shareholders' equity 41,319 40,016
------- -------
Total liabilities and shareholders' equity $516,596 $505,701
======= =======
3
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended December 31,
(In thousands, except per share data)
2002 2001
Interest income
Loans $7,966 $8,193
Mortgage-backed securities 59 86
Investment securities 83 178
Interest-bearing deposits and other 116 113
----- -----
Total interest income 8,224 8,570
Interest expense
Deposits 2,633 3,551
Borrowings 1,750 1,711
----- -----
Total interest expense 4,383 5,262
----- -----
Net interest income 3,841 3,308
Provision for losses on loans 155 465
----- -----
Net interest income after provision
for losses on loans 3,686 2,843
Other income
Mortgage banking income 943 813
Gain on sale of deposits - 250
Gain on sale of office premises 243 -
Gain on sale of investment securities designated as available for sale 97 -
Gain on sale of real estate acquired through foreclosure 23 -
Other operating 175 155
----- -----
Total other income 1,481 1,218
General, administrative and other expense
Employee compensation and benefits 1,363 1,189
Occupancy and equipment 272 273
Data processing 113 103
Franchise taxes 100 85
Amortization of intangible assets 15 15
Advertising 60 63
Other operating 537 412
----- -----
Total general, administrative and other expense 2,460 2,140
----- -----
Earnings before income taxes 2,707 1,921
Federal income taxes
Current 999 779
Deferred (94) (126)
----- -----
Total federal income taxes 905 653
----- -----
NET EARNINGS $1,802 $1,268
===== =====
EARNINGS PER SHARE
Basic $.40 $.29
=== ===
Diluted $.39 $.28
=== ===
DIVIDENDS PAID PER COMMON SHARE $0.1025 $0.0925
====== ======
4
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended December 31,
(In thousands)
2002 2001
Net earnings $1,802 $1,268
Other comprehensive income (loss), net of taxes:
Unrealized holding losses on securities during
the period, net of tax benefits of $7 and $14
for 2002 and 2001, respectively (14) (27)
Reclassification adjustment for realized gains included
in earnings, net of taxes of $33 (64) -
----- -----
Comprehensive income $1,724 $1,241
===== =====
Accumulated comprehensive income $ 262 $ 536
===== =====
5
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended December 31,
(In thousands)
2002 2001
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 1,802 $ 1,268
Adjustments to reconcile net earnings to net cash provided
by (used in) operating activities:
Amortization of premiums and discounts on investment and
mortgage-backed securities 10 34
Amortization of deferred loan origination fees (51) (65)
Depreciation and amortization 94 133
Amortization of intangible assets 15 15
Provision for losses on loans 155 465
Gain on sale of real estate (243) -
Gain on sale of securities designated as available for sale (97) -
Gain on sale of real estate acquired through foreclosure (23) -
Gain on sale of mortgage loans (931) (755)
Loans disbursed for sale in the secondary market (69,282) (41,051)
Proceeds from sale of loans in the secondary market 79,379 39,188
Gain on sale of deposits - (250)
Federal Home Loan Bank stock dividends (89) (103)
Increase (decrease) in cash due to changes in:
Accrued interest receivable 287 319
Prepaid expenses and other assets 52 77
Accounts payable on mortgage loans serviced for others (85) 18
Other liabilities (414) (183)
Federal income taxes
Current 992 670
Deferred (94) (126)
------ ------
Net cash provided by (used in) operating activities 11,477 (346)
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 444 591
Proceeds from maturity of investment securities 3,765 500
Proceeds from sale of investment securities designated as
available for sale 3,622 -
Purchase of investment securities designated as available for sale (8,342) (777)
Loan principal repayments 51,107 41,351
Loan disbursements (61,135) (52,663)
Proceeds from sale of real estate acquired through foreclosure 261 -
Purchase of office premises and equipment (478) (97)
Proceeds from sale of office premises 366 -
------ ------
Net cash used in investing activities (10,390) (11,095)
------ ------
Net cash provided by (used in) operating and investing
activities (balance carried forward) 1,087 (11,441)
------ ------
6
Winton Financial Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the three months ended December 31,
(In thousands)
2002 2001
Net cash provided by (used in) operating and investing
activities (balance brought forward) $ 1,087 $(11,441)
Cash flows provided by (used in) financing activities:
Sale of deposits - (7,806)
Net increase in deposit accounts 1,233 1,619
Repayments of Federal Home Loan Bank advances (7,662) (18,183)
Proceeds from Federal Home Loan Bank advances 15,000 33,000
Advances by borrowers for taxes and insurance 958 1,033
Proceeds from issuance of shares under stock option plans 37 45
Dividends paid on common stock (458) (411)
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Net cash provided by financing activities 9,108 9,297
------ -------
Net increase (decrease) in cash and cash equivalents 10,195 (2,144)
Cash and cash equivalents at beginning of period 11,965 5,609
------ -------
Cash and cash equivalents at end of period $22,160 $ 3,465
====== =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ - $ 100
====== =======
Interest on deposits and borrowings $ 4,406 $ 5,428
====== =======
Supplemental disclosure of noncash investing activities:
Unrealized losses on securities designated as available
for sale, net of related tax effects $ (78) $ (27)
====== =======
Recognition of mortgage servicing rights in accordance with
SFAS No. 140 $ 89 $ 70
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7
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three-month periods ended December 31, 2002 and 2001
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore,
do not include information or footnotes necessary for a complete
presentation of financial position, results of operations, and cash
flows in conformity with accounting principles generally accepted in
the United States of America. Accordingly, these financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto of Winton Financial Corporation ("Winton
Financial" or the "Corporation") included in the Annual Report on Form
10-K for the year ended September 30, 2002. However, all adjustments
(consisting of only normal recurring accruals) which, in the opinion of
management, are necessary for a fair presentation of the consolidated
financial statements have been included. The results of operations for
the three-month period ended December 31, 2002, are not necessarily
indicative of the results which may be expected for the entire fiscal
year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of Winton Financial and its wholly-owned subsidiary, The Winton Savings
and Loan Co. ("Winton Savings" or the "Company"). All significant
intercompany items have been eliminated.
3. Effects of Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 carries over the recognition and measurement provisions in SFAS
No. 121. Accordingly, an entity must recognize an impairment loss if
the carrying value of a long-lived asset or asset group (a) is not
recoverable and (b) exceeds its fair value. Similar to SFAS No. 121,
SFAS No. 144 requires an entity to test an asset or asset group for
impairment whenever events or changes in circumstances indicate that
its carrying amount may not be recoverable. SFAS No. 144 differs from
SFAS No. 121 in that it provides guidance on estimating future cash
flows to test recoverability. An entity may use either a
probability-weighted approach or best-estimate approach in developing
estimates of cash flows to test recoverability. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years.
Management adopted SFAS No. 144 effective October 1, 2002, without
material effect on the Corporation's financial condition or results of
operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 provides
financial accounting and reporting guidance for costs associated with
exit or disposal activities, including one-time termination benefits,
contract termination costs other than for a capital lease, and costs to
consolidate facilities or relocate employees. SFAS No. 146 is effective
for exit or disposal activities initiated after December 31, 2002.
Management adopted SFAS No. 146 effective January 1, 2003, without
material effect on the Corporation's financial condition or results of
operations.
8
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three-month periods ended December 31, 2002 and 2001
3. Effects of Recent Accounting Pronouncements (continued)
In October 2002, the FASB issued SFAS No. 147, "Accounting for Certain
Financial Institutions: An Amendment of FASB Statements No. 72 and 144
and FASB Interpretation No. 9," which removes acquisitions of
financial institutions from the scope of SFAS No. 72, "Accounting for
Certain Acquisitions of Banking and Thrift Institutions," except for
transactions between mutual enterprises. Accordingly, the excess of
the fair value of liabilities assumed over the fair value of tangible
and intangible assets acquired in a business combination should be
recognized and accounted for as goodwill in accordance with SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets."
SFAS No. 147 also requires that the acquisition of a less-than-whole
financial institution, such as a branch, be accounted for as a business
combination if the transferred assets and activities constitute a
business. Otherwise, the acquisition should be accounted for as the
acquisition of net assets.
SFAS No. 147 also amends the scope of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," to include long-term
customer relationship assets of financial institutions (including
mutual enterprises) such as depositor- and borrower-relationship
intangible assets and credit cardholder intangible assets.
The provisions of SFAS No. 147 related to unidentifiable intangible
assets and the acquisition of a less-than-whole financial institution
are effective for acquisitions for which the date of acquisition is on
or after October 1, 2002. The provisions related to impairment of
long-term customer relationship assets are effective October 1, 2002.
Transition provisions for previously recognized unidentifiable
intangible assets are effective on October 1, 2002, with earlier
application permitted.
Management adopted SFAS No. 147 on October 1, 2002, without material
effect on the Corporation's financial condition or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS No. 148
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used
on reported results. SFAS No. 148 is effective for fiscal years
beginning after December 15, 2002. The interim disclosure provisions
are effective for financial reports containing financial statements for
interim periods beginning after December 15, 2002. SFAS No. 148 is not
expected to have a material effect on the Corporation's financial
position or results of operations.
9
Winton Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three-month periods ended December 31, 2002 and 2001
4. Earnings Per Share
Basic earnings per common share is computed based upon the
weighted-average number of common shares outstanding during the period.
Diluted earnings per common share include the dilutive effect of
additional potential common shares issuable under the Corporation's
stock option plan. The computations are as follows:
For the three months ended
December 31,
2002 2001
Weighted-average common shares
outstanding (basic) 4,467,978 4,441,487
Dilutive effect of assumed exercise
of stock options 131,314 105,104
--------- ---------
Weighted-average common shares
outstanding (diluted) 4,599,292 4,546,591
========= =========
Options to purchase 155,500 and 186,000 shares of common stock, with a
respective weighted-average exercise price of $13.03 and $12.53, were
outstanding at December 31, 2002 and 2001, respectively, but were
excluded from the computation of common share equivalents for those
respective periods because their exercise prices were greater than the
average market price of the common shares.
10
Winton Financial Corporation
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
In the following pages, management presents an analysis of the financial
condition of Winton Financial as of December 31, 2002, and the results of
operations for the three-month periods ended December 31, 2002 compared to the
same period in the prior year. In addition to this historical information, the
following discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, Winton Financial's operations and Winton
Financial's actual results could differ significantly from those discussed in
the forward-looking statements. Some of the factors that could cause or
contribute to such differences are discussed herein, but also include changes in
the economy and interest rates in the nation and in Winton Financial's general
market area. Without limiting the foregoing, the following statements in this
discussion and analysis are forward-looking and are, therefore, subject to such
risks and uncertainties:
1. Management's analysis of the interest rate risk of Winton Savings;
2. Management's discussion of the liquidity of Winton Savings' assets and the
regulatory capital of Winton Savings;
3. Management's determination of the amount and adequacy of the allowance for
loan losses; and
4. Management's opinion as to the effects of recent accounting pronouncements.
Discussion of Financial Condition Changes from September 30, 2002 to December
31, 2002
The Corporation had total assets of $516.6 million at December 31, 2002, an
increase of $10.9 million, or 2.2%, over the September 30, 2002 total. The
increase in assets was comprised of a $758,000 increase in loans receivable,
including loans held for sale, an increase in cash and interest-bearing deposits
of $10.2 million and an increase in investments available for sale of $933,000,
which were partially offset by a decrease in mortgage-backed securities of
$452,000. The growth in assets was funded primarily by a $7.3 million increase
in advances from the Federal Home Loan Bank ("FHLB"), undistributed earnings of
$1.3 million and an increase in deposits of $1.2 million.
Cash and cash equivalents totaled $22.2 million at December 31, 2002, an
increase of $10.2 million over the balance at September 30, 2002. Investment
securities totaled $14.0 million at December 31, 2002, an increase of $933,000,
or 7.1%, over September 30, 2002 levels. The increase in investment securities
resulted from purchases of $8.3 million, which were partially offset by sales
and maturities totaling $7.4 million. Purchases during the period were comprised
of $3.8 million of municipal securities and $4.5 million of short-term U.S.
Treasury and government agency securities.
Mortgage-backed securities totaled $5.5 million at December 31, 2002, a decrease
of $452,000, or 7.6%, from September 30, 2002, due primarily to principal
repayments during the period.
Loans receivable totaled $457.7 million at December 31, 2002, an increase of
$758,000, or .2%, compared to the September 30, 2002 total. Loan originations
totaling $130.4 million were substantially offset by loans sales of $78.4
million and principal repayments of $51.0 million. Loans originated during the
three-month period ended December 31, 2002, were comprised predominately of
refinanced loans secured by one- to four-family residential real estate as
consumers' preference remained focused on fixed-rate loans. As a result, the
volume of loans sold increased by $40.0 million, or 104.1%, year to year.
11
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Discussion of Financial Condition Changes from September 30, 2002 to December
31, 2002 (continued)
The Company's allowance for loan losses totaled $1.9 million at December 31,
2002, an increase of $98,000, or 5.3%, over the total at September 30, 2002. At
December 31, 2002, the allowance represented approximately .41% of the total
loan portfolio and 47.1% of total nonperforming loans. Nonperforming loans
totaled $4.1 million and $3.4 million at December 31, 2002 and September 30,
2002, respectively. The nonperforming loans at December 31, 2002, were comprised
primarily of $1.6 million of loans secured by one- to four-family residential
real estate and $2.5 million of loans secured by multi-family and nonresidential
real estate. Included in nonperforming multi-family and nonresidential loans was
a $2.0 million loan collateralized by an office building and lot with a
loan-to-value ratio of approximately 73%. At December 31, 2002, the ratio of
total nonperforming loans to total loans amounted to .87%, compared to .76% at
September 30, 2002. Management believes all nonperforming loans are adequately
collateralized and that there are no unreserved losses on such nonperforming
loans at December 31, 2002. Although management believes that its allowance for
loan losses at December 31, 2002 is adequate based on the available facts and
circumstances, there can be no assurance that additions to such allowance will
not be necessary in future periods, which could adversely affect Winton
Financial's results of operations.
Deposits totaled $334.2 million at December 31, 2002, an increase of $1.2
million, or .4%, over September 30, 2002 levels. Deposits increased during the
three months ended December 31, 2002, due primarily to management's continuing
efforts to grow the portfolio through marketing and pricing strategies. Advances
from the FHLB and other borrowings totaled $133.8 million at December 31, 2002,
an increase of $7.3 million, or 5.9%, over September 30, 2002 levels. FHLB
advances were used primarily to fund asset growth and to hedge against an
overall rise in future interest rates. During the three months ended December
31, 2002, the Company borrowed $12.0 million from the FHLB which was comprised
of advances with an average term of 4.75 years and a weighted-average interest
rate of 3.50%.
Shareholders' equity totaled $41.3 million at December 31, 2002, an increase of
$1.3 million, or 3.3%, over September 30, 2002. The increase resulted from net
earnings of $1.8 million and proceeds from the exercise of stock options of
$37,000, which were partially offset by dividends totaling $458,000 and a
decrease in unrealized gains on available for sale securities of $78,000.
The Company is required to meet minimum capital standards promulgated by the
Office of Thrift Supervision (the "OTS"). At December 31, 2002, the Company's
regulatory capital was well in excess of such minimum capital requirements.
Comparison of Operating Results for the Three-Month Periods ended December 31,
2002 and 2001
General
The Corporation recorded net earnings for the three months ended December 31,
2002, totaling $1.8 million, an increase of $534,000, or 42.1%, compared to net
earnings of $1.3 million for the same period in 2001. The increase in net
earnings was comprised of a $533,000 increase in net interest income, a $310,000
decrease in the provision for losses on loans and a $263,000 increase in other
income, which were partially offset by a $320,000 increase in general,
administrative and other expense and a $252,000 increase in the provision for
federal income taxes.
12
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods ended December 31,
2002 and 2001 (continued)
Net Interest Income
Interest income on loans and mortgage-backed securities totaled $8.0 million for
the three months ended December 31, 2002, a decrease of $254,000, or 3.1%,
compared to the same quarter in 2001. The decrease resulted primarily from a
decrease in the weighted-average yield of 58 basis points, to 6.88% for the
three months ended December 31, 2002, which was partially offset by an increase
in the average balance outstanding of $22.6 million, or 5.1%, year to year.
Interest income on investment securities and interest-bearing deposits decreased
by $92,000, or 31.6%, for the three months ended December 31, 2002, compared to
the same quarter in 2001, due primarily to a decrease of 198 basis points in the
weighted-average yield, to 2.43% for the 2002 quarter, which was partially
offset by an increase of $6.3 million, or 24.0%, in the average balance
outstanding year to year.
Interest expense on deposits decreased by $918,000, or 25.9%, for the three
months ended December 31, 2002, compared to the same period in 2001. The
decrease was primarily attributable to a 137 basis point decrease in the
weighted-average cost of deposits, which was partially offset by a $20.1
million, or 6.4%, increase in the average balance of deposits outstanding year
to year. The weighted-average cost of deposits amounted to 3.13% and 4.50% for
the three months ended December 31, 2002 and 2001, respectively.
Interest expense on borrowings increased by $39,000, or 2.3%, during the three
months ended December 31, 2002, compared to the same quarter in 2001, primarily
due to a $6.6 million, or 5.6%, increase in average balance of borrowings
outstanding year to year, which was partially offset by an 18 basis point
decrease in the weighted-average cost of borrowings, to 5.56% for the three
months ended December 31, 2002. The decreases in yields on interest-earning
assets and costs of interest-bearing liabilities were due primarily to the
overall decrease in interest rates in the economy throughout 2001 and 2002.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $533,000, or 16.1%, to $3.8 million for the
three months ended December 31, 2002, compared to the same quarter in 2001. The
interest rate spread increased by 34 basis points, to 2.79% for the three months
ended December 31, 2002, while the net interest margin increased by 27 basis
points, to 3.08% for the three months ended December 31, 2002, compared to 2.81%
for the three months ended December 31, 2001.
Provision for Losses on Loans
Winton Savings charges a provision for losses on loans to earnings to bring the
total allowance for loan losses to a level considered appropriate by management
based on historical experience, the volume and type of lending conducted by the
Company, the status of past due principal and interest payments, and general
economic conditions, particularly as such conditions relate to the Company's
loan portfolio and market area. As a result of such analysis, management
recorded a $155,000 provision for losses on loans during the quarter ended
December 31, 2002, compared to a provision of $465,000 recorded in the 2001
period. The current period provision was predicated primarily upon the growth in
the loan portfolio and the increase in nonperforming loans. There can be no
assurance that the allowance for loan losses of the Company will be adequate to
cover losses on nonperforming assets in the future.
13
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods ended December 31,
2002 and 2001 (continued)
Provision for Losses on Loans (continued)
The following table sets forth information regarding the Company's delinquent
loans, nonperforming assets and the allowance for loan losses.
December 31, September 30,
2002 2002
(Dollars in thousands)
Loans delinquent
30 to 89 days $5,819 $4,730
90 or more days 4,137 3,398
----- -----
Total delinquent loans $9,956 $8,128
===== =====
Loans accounted for on nonaccrual basis $3,232 $ 885
Loans greater than 90 days delinquent and still accruing 905 2,513
----- -----
Total nonperforming loans 4,137 3,398
Real estate acquired through foreclosure 2,220 2,462
----- -----
Total nonperforming assets $6,357 $5,860
===== =====
Allowance for loan losses $1,948 $1,850
===== =====
Allowance for loan losses to total loans 0.41% 0.42%
Allowance for loan losses to nonperforming loans 47.09% 54.44%
Allowance for loan losses to nonperforming assets 30.64% 31.57%
Nonperforming loans to total loans 0.87% 0.76%
While management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover losses inherent in the
Company's loan portfolio at this time, no assurance can be given that the level
of the allowance will be sufficient to cover future loan losses or that future
adjustments to the allowance will not be necessary if economic and/or other
conditions differ substantially from the economic and other conditions
considered by management in evaluating the adequacy of the current level of the
allowance.
Other Income
Other income totaled $1.5 million for the three months ended December 31, 2002,
an increase of $263,000, or 21.6%, compared to the 2001 period, due primarily to
a $130,000, or 16.0%, increase in mortgage banking income, a $97,000 gain on
sale of investment securities, a $243,000 gain on sale of office premises, a
$23,000 gain on sale of real estate acquired through foreclosure and a $20,000,
or 12.9% increase in other operating income, partially offset by the effects of
the $250,000 gain on sale of deposits recorded in the three months ended
December 31, 2001. The increase in mortgage banking income was due primarily to
the increase in sales volume of $40.1 million, or 104.3%, over the three months
ended December 31, 2001. The gain of sale of investment securities was primarily
attributable to management's decision to reposition the investment portfolio.
During the current quarter, $3.6 million of U.S. Government agency securities
were sold and the proceeds were redeployed into tax-free municipal securities.
The Company sold its former Central Parkway branch realizing a gain of $243,000.
The deposits related to this branch were sold in the three month period ended
December 31, 2001, with the Company recognizing a $250,000 gain. The increase in
other income was primarily attributable to prepayment fees on nonresidential
real estate loans and growth in deposit service charges on "Generation Gold," a
new checking product introduced in fiscal 2002.
14
Winton Financial Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Comparison of Operating Results for the Three-Month Periods ended December 31,
2002 and 2001 (continued)
General, Administrative and Other Expense
General, administrative and other expense totaled $2.5 million for the three
months ended December 31, 2002, an increase of $320,000, or 15.0%, compared to
the same period in 2001. The increase was due primarily to an increase in
employee compensation and benefits of $174,000, or 14.6%, and an increase in
other operating expenses of $125,000, or 30.3%. Employee compensation and
benefits increased primarily due to normal merit increases year to year, $91,000
of expense related to an incentive bonus plan and a $25,000 increase in the
401(k) contribution quarter to quarter. The increase in other operating expense
was due primarily to increased costs related to foreclosure activity, an
increase in professional fees related to outsourced internal audit services and
pro-rata increases in other operating expenses related to the Corporation's
growth year to year.
Federal Income Taxes
The provision for federal income taxes amounted to $905,000 for the three months
ended December 31, 2002, an increase of $252,000, or 38.6%, compared to the same
period in 2001. The increase was due primarily to the increase in earnings
before taxes of $786,000, or 40.9%, partially offset by nontaxable interest
income in the current quarter. The effective tax rates were 33.4% and 34.0% for
the three-month periods ended December 31, 2002 and 2001, respectively.
Liquidity and Capital Resources
Winton Savings maintains sufficient funds to meet deposit withdrawals, loan
commitments and expenses. Control of the Company's cash flow requires the
anticipation of deposit flows and loan payments. The Company's primary sources
of funds are deposits, borrowings, principal and interest repayments on loans
and proceeds from the sale of mortgage loans.
At December 31, 2002, Winton Savings had $134.5 million of certificates of
deposit maturing within one year. It has been the Company's historic experience
that such certificates of deposit will be renewed at Winton Savings' market
rates of interest. It is management's belief that maturing certificates of
deposit over the next year will similarly be renewed at market rates of interest
without a material adverse effect on results of operations.
In the event that certificates of deposit cannot be renewed at prevailing market
rates, the Company can obtain additional advances from the FHLB of Cincinnati.
At December 31, 2002, the Company had $131.8 million of outstanding FHLB
advances, with the ability to borrow an additional $85.0 million. The Company
has also utilized brokered deposits as a supplement to its local deposits when
such funds are attractively priced in relation to the local market. As of
December 31, 2002, the Company had $9.9 million in brokered deposits.
Winton Financial believes that the Company's liquidity posture at December 31,
2002, is adequate to meet outstanding loan commitments and other cash
requirements.
15
Winton Financial Corporation
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There has been no adverse material change in the Corporation's market risk since
the Corporation's Form 10-K filed with the Securities and Exchange Commission
for the fiscal year ended September 30, 2002.
ITEM 4 CONTROLS AND PROCEDURES
(a) The Corporation's Chief Executive Officer and Chief Financial
Officer evaluated the disclosure controls and procedures (as defined under Rules
13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended) as
of a date within ninety days of the filing date of this quarterly report. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
have concluded that the Corporation's disclosure controls and procedures are
effective.
(b) There were no significant changes in the Corporation's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation.
16
Winton Financial Corporation
PART II
ITEM 1. Legal Proceedings
Not applicable
ITEM 2. Changes in Securities and Use of Proceeds
Not applicable
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
On January 24, 2003, the Annual Meeting of Shareholders of Winton
Financial Corporation was held. The following matters were voted upon
by the shareholders, as follows:
1) Four directors were nominated for re-election and were re-elected
for terms expiring in 2005, pursuant to the following votes:
Robert L. Bollin For: 3,499,433 Abstain: 520,293
Thomas H. Humes For: 3,895,404 Abstain: 124,322
William J. Parchman For: 3,894,604 Abstain: 125,122
Henry L. Schulhoff For: 3,905,610 Abstain: 114,116
2) To adopt the WFC 2003 Stock Option and Incentive Plan:
For: 2,274,425 Against: 852,833 Abstain: 44,264
3) To adopt the Amended and Restated Code of Regulations (the
"Code"):
For: 2,499,686 Against: 599,664 Abstain: 72,172
4) To amend the Code to restrict the removal of directors:
For: 2,842,165 Against: 253,935 Abstain: 75,422
5) To amend the Code to expand the indemnification of directors and
officers:
For: 2,909,176 Against: 226,698 Abstain: 35,648
6) To amend the Code to make technical changes and remove obsolete
provisions:
For: 2,574,520 Against: 569,154 Abstain: 27,848
7) The ratification of the selection of Grant Thornton LLP as the
auditors of Winton Financial for the current fiscal year.
For: 3,857,698 Against: 136,188 Abstain: 25,840
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K None.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 14, 2003 By: /s/Robert L. Bollin
------------------------- ------------------------------
Robert L. Bollin
President
Date: February 14, 2003 By: /s/Jill M. Burke
------------------------- ------------------------------
Jill M. Burke
Chief Financial Officer
18
CERTIFICATION
I, Robert L. Bollin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Winton Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 /s/Robert L. Bollin
--------------------------------------
Robert L. Bollin, President
(Chief Executive Officer)
19
CERTIFICATION
I, Jill M. Burke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Winton Financial
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 14, 2003 /s/Jill M. Burke
--------------------------------------
Jill M. Burke, Chief Financial Officer
20